Different indexes of inflation are all trending down: headline, ex food and energy, sticky - the below chart shows the Fed’s preferred inflation measure, PCE inflation, along with the sticky inflation index.
Over the last 6 months using the latest available PCE inflation data (Feb to Aug 2023), inflation was 2.6%.
| PCE Inflation Index Feb 2023 | 119.386 |
| PCE Inflation Index Aug 2023 | 120.953 |
| 6 month change % | 1.31% |
| 6 month change annualized % | 2.64% |
An inflation rate of 2.6% is not high and is not far from the Fed’s 2% target.
The sticky inflation index measures prices which, by definition, change more slowly than the overall (headline) inflation price index. The sticky index does not measure whether overall inflation is sticky.
The sticky index peaked with about a 6 month lag behind the headline index in the chart below and overall inflation declined faster than the sticky index, so when measured by the steepness of this decline, headline inflation was not as sticky as the sticky index (as we might normally expect based on how these indexes are defined).
I doubt the Fed would be surprised or concerned that the sticky inflation index is above 2% given that this index changes slowly by definition and the other inflation indexes have been trending down for 12 to 15 months or so and over the last 6 months PCE inflation is 2.64%.
Because the sticky index changes slowly, by definition it is more correlated with past values. And by this same definition it is more correlated with future values. This autocorrelation makes it “predictive” by this statistical mechanism, but I’d be curious as to how this relates to inflation expectations or some more economically fundamental predictive power concerning how markets set prices.
